Chin Well Holdings (Chin Well) barely achieved profitability in in 3QFY23 on lower revenue and reduced profit margin. Cumulative 9MFY23 reported net profit of  RM34.4m is below both our and consensus expectations, accounting for only 46%  and 54% of our and consensus full-year estimates, respectively. The discrepancy was largely due to weak demand from European market and lower average selling price (ASP) resulting from price competition from China after the re-opening of the country’s borders. The outlook for the Group remains challenging, particularly in  Europe as demand continues to be affected by on-going geopolitical conflicts,  elevated inflation and interest rate hikes. We cut our FY23-25F earnings forecasts by an average of 30%. Consequently, we revise down our PE-based target price to RM1.24 (RM1.80). We maintain our Neutral call on Chin Well. No dividend was declared for the current quarter.

• 3QFY23 revenue fell by 46.2% YoY to RM90.2m on weak demand and lower revenue for both the Fasteners (-16.5% YoY) and Wire products (-32.1% YoY)  divisions. The demand for fasteners product was affected by on-going geopolitical conflicts, particularly in the European market. Wire product orders  were affected by the weak global economic sentiment, while local demand has  not fully recovered since the end of last year.

• 3QFY23 earnings barely achieved profitability with profit before tax falling by 99.6% YoY to RM0.2m mainly due to lower revenue and decline in average selling price (ASP) following the drop in global wire rod prices, and competition  from China after re-opening of the country’s borders.

• Outlook. The near-term outlook for the Group remains challenging, particularly  in Europe as demand has been affected by on-going geopolitical conflicts,  elevated inflation and interest rate hikes. We also expect the Group to continue facing margin compression with lower ASP and higher operating cost.  Nevertheless, we expect construction projects in Malaysia to restart in the months ahead, and drive demand for its products. In addition, the Group will  also focus on its DIY segment and expansion of new products in the  downstream market to cushion the weakening demand and margin squeeze

Source: PublicInvest Research - 29 May 2023